The Pros and Cons of Competition Among Employees

Executive Summary

New research shows that the way in which leaders communicate about competition can make employees experience either anxiety or excitement, and those feelings influence whether they react positively or negatively. When employees feel excited, they’re more likely to come up with creative solutions. When they feel anxious, they’re more likely to cut corners or sabotage one another. Leaders can generate excitement by highlighting the potential positive consequences of competition (e.g., the recognition and rewards that await outstanding performers) rather than creating anxiety by singling out and highlighting low performers.

Competition between employees is an inescapable part of most people’s work lives. Whether overtly or otherwise, most companies create a dynamic in which employees compete against each other for recognition, bonuses, and promotions. After a close look at workplace policies across corporations, banks, law firms, and tech companies, the New York Times called grueling competition the defining feature of the upper-echelon workplace.

However, employees can achieve their results in different ways. At Wells Fargo, for example, employees delivered higher sales numbers by secretly creating millions of unauthorized bank and credit card accounts — an unethical path toward results that has very high long-term costs.

But employees can also outperform their competition through innovation. If employees compete by finding new opportunities for providing service to clients or devising a way to bring a new product to market faster, then internal competition can translate into a real competitive advantage for organizations.

What distinguishes competitions that unleash creativity from competitions that cause unethical behaviors? It depends on how the competition makes employees feel.

Some competitions elicit fear and anxiety, because they focus employees on the threat of being laid off, losing income, or being publicly humiliated. Other competitions focus employees on winning a coveted bonus or public recognition, which create arousal but make people feel anticipation and excitement.

Anxiety and excitement are very different emotional responses to a competition. More importantly, these emotions make people behave differently.

We have conducted several studies showing that when employees interpret their arousal from a competition as anxiety, they are less likely to select creative behaviors to solve problems, and more likely to be unethical. Conversely, when people interpret their arousal from a competition as excitement, they are more likely to select creative behaviors to solve problems, and less likely to be unethical.

In one study, we asked 204 employees from a variety of industries how different employment policies at their company (such as bonuses, performance management, and promotions) made them feel. We also asked them to think about the behaviors they use to distinguish themselves from other employees.

Some of the behaviors we asked about were creative, such as “Search out new technologies, processes, techniques, and/or product ideas.” Other behaviors were unethical, such as “take credit for your colleague’s work” or “agree to help your colleague but plan not to follow through.”

The results showed that when the employment policies elicited excitement, employees were significantly more likely to use creativity. When managers felt anxious about employment policies, they were significantly more likely cut corners or sabotage colleagues.

In a follow-up field experiment, we focused on how companies can influence whether a competition elicits anxiety or excitement. Although organizations could presumably influence employees’ emotional reactions by re-designing performance management systems and incentive structures, such sweeping structural changes are often hard for individual senior executives to influence. We thus focused on different ways that executives could frame the consequences of competition.

Specifically, we asked 457 managers of an international retail bank to choose a course of action in two customer service scenarios. Managers read the scenarios and then had to decide how to respond. For example, in one scenario the manager needed to:

“Present product options to an important client in response to their request for assistance. You are able to demonstrate that all options provide a ‘fair’ outcome for the client, although some options are more profitable for the bank than others. The bank is approaching year end and you need a big push in order to achieve a top ranking among your colleagues.”

Managers had to select how they would deal with the client. We gave them several options, some of which were unethical (Only present the most profitable options), others were creative (Ask the client if they know any other potential clients who would be willing to have a meeting to discuss this product/solution offering) and some of which were safe options (Present all options to the client objectively with a clear list of risks and potential benefits).

Here’s the twist: For some managers, we highlighted positive consequences that could result (“If you achieve a top ranking, you will receive a substantial bonus this month”). For other managers we highlighted negative outcomes (“If you do not achieve a top ranking, you will lose your substantial bonus this month”). Of course, both of these mean the same thing, but one focuses managers on losing something while the other focuses on gaining something.

Results revealed that focusing on losing a bonus made managers more anxious, whereas focusing on winning a bonus made managers more excited. More importantly, managers’ excitement significantly predicted their willingness to engage in creative behaviors – even after controlling for their anxiety. But the more anxious managers felt in response to the scenarios, the more likely they would engage in unethical behaviors (even after controlling for their excitement).

These results suggest that how a competition makes people feel plays a crucial role for how they try to win. The looming negative consequences of lagging behind can trigger anxiety and prompt people to resort to mis-selling, fraud, and lying to customers.

This is an important finding because many leaders, particularly in competitive industries, believe that it is motivating to publicly deride losers of internal tournaments. For example, the sales cultures adopted by many banks in recent years ridicule those who miss targets. One manager described his firm’s weekly “Cash or Cabbages day” where those who missed their bonuses were publically given cabbages instead of cash.

The way leaders communicate about competition can make employees experience anxiety or excitement about competing. As we have seen, leaders need to invest energy generating excitement by highlighting the potential positive consequences of competition (e.g., recognition and rewards that await outstanding performers) rather than creating anxiety by singling out and highlighting low performers.

How can leaders increase excitement? One powerful example is for leaders to encourage employees to use their “signature strengths” in a way that benefits others as well as themselves. So, when framing a competition, leaders can remind employees to use more of those skills that they are uniquely good at. Leaders also can highlight how success will help customers and also help to achieve the organization’s purpose.

Competition between employees may be an inescapable part of many people’s work lives and can lead to improved performance. But if leaders want to ensure that competition unleashes creativity and not unethical behavior, they must resist the temptation to lead through fear.

Anna Steinhage is a researcher in organizational behavior and visiting researcher at the Global Insights Initiative (GINI) within the Development Research Group at the World Bank.